Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/273815 
Authors: 
Year of Publication: 
2023
Series/Report no.: 
Tinbergen Institute Discussion Paper No. TI 2023-004/III
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
This paper proposes a time-weighted difference-in-differences (TWDID) estimation approach that is robust against interactive fixed effects in short T panels. Time weighting substantially reduces both bias and variance compared to conventional DID estimation through balancing the pre-treatment and post-treatment unobserved common factors. To conduct valid inference on the average treatment effect, I develop a correction term that adjusts conventional standard errors for weight estimation uncertainty. Revisiting a study on the effect of a cap-and-trade program on NOx emissions, TWDID estimation reduces the standard errors of the estimated treatment effect by 10% compared to a conventional DID approach. In a second application I illustrate how to implement TWDID in settings with staggered adoption of the treatment.
Subjects: 
synthetic difference-in-differences
dynamic treatment effects
interactive fixed effects
panel data
Document Type: 
Working Paper

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